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Capstone Copper Corp.

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Capstone Copper Corp.United States Composite

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Q4 2018 · Earnings Call Transcript

Feb 13, 2019

Operator

Good morning, ladies and gentlemen, and welcome to the Capstone Mining Corp Fourth Quarter Year End Results Conference Call. At this time, all lines are in listen-only mode.

Following the presentation, we will conduct a question-and-answer session. [Operator Instructions].

This call is being recorded on Wednesday, February 13, 2019. I would now like to turn the conference over to Mr.

Paul Jones, Capstone’s Vice President of Business Development and Investor Relations. Please go ahead.

Paul Jones

Thanks, Leone. I'd like to welcome everyone on our call today.

The news release announcing Capstone's 2018 fourth quarter financial results is available on our website along with an updated corporate presentation, with summary information on the company and our financial and operating results. With me today are Darren Pylot, President and CEO; Raman Randhawa, Chief Financial Officer; and Brad Mercer, Senior Vice President of Operations and Exploration.

Comments made on the call today will contain forward-looking information. This information, by its nature, is subject to risks and uncertainties and actual results may differ materially from the views expressed today.

For further information on these risks and uncertainties, please see Capstone's relevant filings on SEDAR. And finally, I'll just note that all amounts we will discuss today will be in US dollars unless otherwise specified.

I'll now turn the call over to Darren.

Darren Pylot

Thanks, Paul and good morning, everybody. We ended 2018 on a very positive note, ending the year with three consecutive quarters of performance improvement.

We achieved 2018 production and cost guidance with a 155.2 million pounds of copper produced, at a C1 cost of a $1.83 per pound of payable copper. In 2018, we also repaid a total of $55 million to our revolving credit facility, which reduces our total net debt down to a $150 million and ending the year with over $70 million of cash and cash equivalents.

Our net debt-to-EBITDA ratio now stands at 1.29 times. In Q4, we adjusted net income from continuing operations of $7.9 million and operating cash flow before changes in working capital of $16.3 million.

Production of Pinto Valley in Q4 increased on planned higher throughput and Cozamin achieved throughput of over 3,000 tons per day. Looking ahead to 2019, we have a lot planned and we're very optimistic.

At Pinto Valley, we have a very long reserve life as well as a lot of untapped potential. This year we're planning on a scoping level study to examine the overall reserves and resources.

We’re sitting on over 1 billion tons of resource outside of reserve and we want to explore what potential modernization and/or expansion opportunities might be possible utilizing some or all of those resources. At Cozamin, we recently published a technical report with an extended mine plan out to 2024.

For this year, we’ve budgeted an approximately $4 million of capital to build a one way ramp loop to debottleneck the mine. We're essentially connecting an existing ramp to a planned ramp across a 1 kilometer drift.

This will result in a 30% increase in production by the end of 2020 for annual production somewhere in the 40 million to 45 million pounds per year range of copper. At Santo Domingo this year, we're continuing on the strategic process to right size the project with Capstone’s financing capabilities.

We're looking at a number of alternatives including selling a portion of the project as well as potentially streaming the gold reserve and cobalt resource. This year, we will also be conducting a preliminary economic assessment on the cobalt resource and we're on track to have the entire project permitted and shovel already in early 2020.

So we are steadily improving, 2018 now behind us, we're very excited about the potential for this year with a number of catalysts at our different assets. And with that, we're now ready to take any questions from the floor.

Thank you.

Operator

[Operator instructions] Your first question is from Stefan from Cormark Securities. Stefan, please go ahead.

Stefan Ioannou

Thanks very much guys. Good to see the operational improvement at Pinto Valley.

Just wondering, is that -- do you foresee it getting better as we go forward into future quarters, or you sort of addressed all the reliability issues there through Q4?

Darren Pylot

Stefan, I think when you look at our -- you look at the 2018 performance quarter-over-quarter, you see that production steadily increase and we're still not at the levels we were once at. So I think we're taking that momentum of ‘18 and then planning to build on that into ‘19.

And we feel good about the momentum so far this year.

Stefan Ioannou

Okay, great. And another piece is Santo Domingo, there’s a bit of sort of in the pipeline of things to consider, but are you looking at anything else in terms of sort of the broader grassroots exploration that you had in the past or is it sort of very focused on I guess the three assets that we’ve been talking about?

Darren Pylot

Well we do have a couple grassroots exploration projects outside of our portfolio that we are very excited about, hopefully getting to drill testing this year. So I know the exploration team is very excited about what they have in Mexico and Chile, and then -- but to our more -- the larger scale stuff as I talked about in the call and previously, each site has big catalyst in terms of expansion opportunities and potential at Pinto Valley to assume some of that 1 billion tons of resource that were not in the mine.

And as well we've got the expansion that goes in it. And so we think the lowest risk highest return stuff is within the portfolio, we’re always obviously for a new deposit with our exploration team that has done so well at Cozamin.

Operator

[Operator instructions] Your next question is from Pierre from Haywood Securities. Pierre, please go ahead.

Pierre Vaillancourt

Just wondering if you could layout your long term -- longer term view for Pinto Valley. I know that you’ve addressed Cozamin and just wondering five years out what you -- or even three years what that could evolve into?

Darren Pylot

Thanks, Pierre. So yes, that's a good question.

So there's two parts to that. We think there’s -- we're going to explore this year some potential smaller capital projects that are around crushing and flotation that we think maybe could lift the ceiling for where the operation is now marginally.

So that's one. And then two, on a larger opportunity we're taking things that didn't exist when we first got on this site at Pinto Valley such as lower cost electricity, additional water availability and autonomous mining and technologies that we believe can bring in a lot of the -- some or all of the resources that we don't have in the mines.

So on a larger scale we want to explore to see if we could significantly expand the operation at Pinto Valley and that would be a longer term plus five year project. And in the shorter term, we're looking to increase that ceiling to where we -- higher than where we are now with some smaller capital projects.

Pierre Vaillancourt

Okay. So is it reasonable to expect much of an increase in throughput within a two year time frame?

Or is it just kind of let's wait and see how these projects pan out?

Darren Pylot

Yes, I think we're still working our way through, I mean throughput is one part of the value chain, throughput recovery and availability. So we're looking at all those and trying to hit the maximum on all those points of the business.

And then as I said, if we can improve them, once we get to a ceiling, we think we can do a couple of things to move it higher. So I think there is a chance of the overall copper production increasing over the next couple of years but I just don’t want to focus on the one, the throughputs, it’s not necessarily the key driver.

Pierre Vaillancourt

Yes, I just mentioned that because I know in the past there was reference to 60,000 tons a day and possibly more or so.

Darren Pylot

Right. And I think that I'm not prepared to say we're going to go there yet, because where we've had challenges in the past and we're kind of running a full cycle now and we want to contain where we’re at.

And we're slowly building our confidence to keep inching up the throughput, but we're going to be careful as we do it.

End of Q&A

Operator

Thank you. [Operator instructions] There are no further questions at this time.

Please proceed.

Darren Pylot

Thank you everybody for participating on the call today. I appreciate your time and questions.

Look forward to seeing you next -- hearing from you next call. Have a good day everybody.

Thank you.

Operator

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.

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